The King of Beers.

[RunDownHouse]

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It's what you do with the capital that's important.

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Ok, very true. P/EBV is still a good starting point for judging how fairly valued a stock is. If that ratio is exactly 1, that means the company could completely liquidate and give shareholders the exact value of their stock holdings (note that this is AFTER debt investors have been paid). For companies with a P/EBV greater than 1, there's some expectations of growth built into the price of the stock. Anything above 2 or so begins to look expensive, although that depends, of course. Anything lower than .5 or so is also dangerous, because that means that expectations of value destruction are priced into the stock.

I'm not sure why you'd think EBV is a crappy metric; in fact, I'd be shocked if you've ever actually seen it done correctly outside of a couple finance textbooks. But any metric that adjusts for the accounting distortions built into the current system is, by definition, better than metrics based on those distortions, right?

As far as what management's performance with their capital being the most important, BUD's ROIC is a very healthy 14.5% or so, making their economic profit margin over 8%. Compare this to TAP, whose ROIC is 6.5% and EPM is a meager .7% (STZ 5.7/(.3), for further comparison).

When you take BUD's P/EBV in conjunction with other metrics like their EPM and CAP, you get the picture of a very sound company, economically.

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Example, if we owned a bunch of printing presses for printing newspapers and suddenly it became much cheaper to print newpapers on laser printers, overnight our printing presses would become almost worthless.

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A much better example in this case would be if we owned a bunch of breweries, and all of a sudden it became much more popular to drink wine or spirits, or not drink at all [img]/images/graemlins/grin.gif[/img]. First, note that even in this case, we would be much better off than if we held the stock of many other companies, since the P/EBV is so reasonable. If the example actually happened, BUD could liquidate, and give us back almost all of our investment (low downside risk). If we were invested in a firm with a higher P/EBV, we would receive less of our investment back. Second, that's more of an exogenous risk than endogenous. Quantitative numbers can take you only so far, and after that its up to you to judge if the expectations and risk embedded in the stock are reasonable. Personally, having considered the possibility of Prohibition resurfacing and BUD liquidating, I think the expectations are more than reasonable, especially since the price has trickled down over the last few months.

Again, I want to say that I do think there are better opportunities out there. But BUD is definitely nowhere near a sell, and I wouldn't even say its a hold.

Of course, none of this is to be construed as investment advice, do your own diligence, past performance does not indicate future performance, etc.

[TripleH68]

Thanks for some insightful debate/analysis.

My father worked for BUD for many years and it was the first stock I owned. Sort of a 'buy what you know' approach. The stock has done well for my family, pays a dividend and currently comprises 15% of my portfolio. I plan on holding mostly because I do not do much bouncing in and out of stocks. 'Timing' the market is a game for the brave or foolish IMHO.

FWIW other stocks I own include ET, AMTD, RFMD, SLE, FII, MLI, ANDE, MCD, LC.

[AceHigh]

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P/EBV is still a good starting point for judging how fairly valued a stock is. If that ratio is exactly 1, that means the company could completely liquidate and give shareholders the exact value of their stock holdings

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I understand what you are trying to do, but it doesn't work. Capital is useless if it can't be used to create earnings. Often the very assets that you are selling are unlikely to be desired by others. If Walmart builds a megastore in Alaska and discovers that there aren't enough sales in Alaska to make money, is it likely that someone else can buy that store and make money? Probably not, and then your asset becomes a liability.

Capital that your company can't turn into earnings, probably won't be very useful for other companies to turn into earnings either. Unless you have bad management, and then you are in big trouble too.



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BUD's ROIC is a very healthy 14.5% or so, making their economic profit margin over 8%.

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I don't just want health, I want growth. I want my stock price to grow, and the quickest way for that is for my earnings to grow.

[RunDownHouse]

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Capital that your company can't turn into earnings, probably won't be very useful for other companies to turn into earnings either. Unless you have bad management, and then you are in big trouble too.

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Right, but I ignored that in part because those assets are worth something. Even in the worst-case scenario, somebody is going to be willing to pay something for the land, buildings, etc, and so a company with a good P/EBV will be better off respectively than another company in their sector with a worse P/EBV.

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BUD's ROIC is a very healthy 14.5% or so, making their economic profit margin over 8%.

[/ QUOTE ]I don't just want health, I want growth. I want my stock price to grow, and the quickest way for that is for my earnings to grow.

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Um. ROIC is the return on invested capital, the free cash flow divided by invested capital. Its better than earnings because both the net income and the asset base are adjusted for accounting distortions.